According to Reuters, global investment banks are facing
declining investment banking fee income, bearing the brunt of the
amplifying Eurozone crisis. Concerns have crept up in the slothful
stock market momentum.
According to the source, in the first half of 2012, global
investment banking fee income fell 25% from the year-ago period to
$32 billion. Moreover, fee income stood at $14 billion in the
second quarter of 2012, down 22% sequentially. The current figure
depicts the lowest level of fee income since the beginning of 2009,
reflecting uncertain outlook for the global economy.
Major investment banks, including
Bank of America Corporation
(
BAC
),
JPMorgan Chase & Co.
(
JPM
),
The Goldman Sachs Group Inc.
(
GS
),
Credit Suisse Group
(
CS
),
Barclays PLC
(
BCS
),
Deutsche Bank AG
(
DB
), are expected to feel the pressure of the dipping fee income in
their upcoming quarterly earnings results.
Coupled with the falling fee income, the crisis has hit hard
securities underwriting and merger activities of the financial
institutions. However, we can expect the income from retail
divisions and wealth management wings to comfort banks in their
earnings, but the downfall of investment banking division would be
a blow.
Lower industry revenue has been forcing these banks to cut costs in
order to stay afloat. As a result, banks will continue cutting jobs
and reducing the size of operations by selling non-core assets. So,
any cost-cutting measure will act as a defense.
Precisely, Reuters reported, the total number of layoffs by top
investment banks has summed up to nearly 130,000 over the last one
year. Owing to the effect triggered by the Eurozone crisis, the
banks are cutting jobs in various divisions to curtail costs.
Moreover, new regulations and market volatility has added to the
woes.
If the crisis continues further, there will be significant impact
on worldwide capital markets. On the other hand, the extremely low
interest-rate environment is another manifestation of this
uncertain macro backdrop. Concerns about the European finances and
soft U.S. growth prospects have made treasury instruments the
choice of safe asset class. As a result, the yields on benchmark
treasury bonds are hovering at low levels.
We don't expect the potency of the sector to return to its
pre-recession peak anytime soon. The economic intricacies may even
result in further disappointments in the upcoming quarters.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
BARCLAY PLC-ADR (BCS): Free Stock Analysis
Report
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
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